This is an opinion editorial by Phil Harvey, CEO of cryptocurrency mining consultancy Sabre56.
Kicking off the first unequivocally positive news cycle for the Bitcoin space since the fall of FTX, BlackRock recently decided to introduce a bitcoin exchange-traded fund (ETF). Within days, two additional giant money managers joined BlackRock as Invesco reactivated its application for a spot BTC ETF and ETF specialist WisdomTree filed its third application for a BTC ETF with the US Securities and Exchange Commission (SEC).
As of this writing, no one can say whether the proposed vehicles will be approved by the SEC, which has recently made headlines for its fierce pursuit of prominent crypto exchanges Coinbase and Binance. We will know soon.
What is most important at this point is a review of the underlying trend: institutional money is slowly entering the bitcoin economy. In the field of bitcoin trading, high-profile investor commitments to date have been volatile and driven by the boom-and-bust cycle typical of fledgling industries – and certainly a defining feature of the bitcoin economy thus far.
BlackRock’s potential spot BTC ETF could be a real bridge to mass adoption. Some have said it offers the best chance of approval yet, not only because of the applicant’s prestige, but also thanks to a proposed oversight sharing agreement that appears to be key in the eyes of the SEC. But regardless of the fate of this particular proposal, an examination of the Bitcoin infrastructure being built today provides a clear picture of the growing stake of institutional money in the industry.
For example, one of the most active and successful venture capital funds in the world, Andreesen Horowitz (a16Z), has doubled down and announced its first international office, to be opened in London, to focus primarily on the development of the crypto economy.
However, institutional investors’ hunt for growth opportunities is nowhere more pronounced than in Bitcoin’s underlying infrastructure: mining. Mining industry champions are signing deals and building at a breakneck pace as their competition gets tougher and the network’s hash rate continues to reach all-time highs.
Betting Beyond Bitcoin
Being less flashy and exciting than the asset trading counterpart it supports, investment reporting in the mining space can be muted. However, it is my experience that large investors, large utilities and even government entities in the US and around the world are smartly assessing the opportunities and using significant financial resources to shape the market. And this is for good reason: the data centers that host Bitcoin miners are equipped to do a number of high-performance calculations in the future, and the value proposition of this in the advent of AI is clear as day.
BlackRock’s move is not just a bet on Bitcoin, but on the world’s most secure and efficient computer network as a way to produce consensus and prove truth in the 21st century, regardless of the asset manager’s intentions. As such, while refraining from making any predictions about the outcome of the application, it is fair to ask what a hypothetical bitcoin ETF would mean for the mining industry.
First, it would mean that any institutional money manager with such an ETF would be a custodian of sorts. They will have to build their own custodial infrastructure – an interesting test of existing industry standards and the “adoption” itself, which will be accompanied by growth.
Second, mass adoption due to increased accessibility—in conjunction with the upcoming halving event in 2024—would be a strong indicator for a wildly priced advertising cycle. While these bull runs, fueled by hype and FOMO, are largely smoke and mirrors, they will channel funds into the industry and benefit serious players who have worked through tough times to reap the rewards.
Finally, and most importantly, institutional investors would have a vested interest in supporting, funding, and improving the existing blockchain infrastructure that verifies Bitcoin transactions and ensures network security. While this is already happening, including home utilities and energy providers benefiting from miners’ load-shedding capabilities, a BTC ETF spot would, with high probability, add to the sector’s investment and validate the industry’s efforts thus far.
This is a guest post by Phil Harvey. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.